Entrepreneurs need to know when to call it quits

Jody Sherman founded several companies. Some got bought out for modest success and others failed. Ecomom was his last startup. Management and staff tried hard but Ecomom didn’t work and it burned.

When Sherman saw no hope for Ecomom, he saw no hope for himself so he ended his own life.

But there is more to the story, as told in a riveting Business Insider article entitled The Story Of A Failed Startup And A Founder Driven To Suicide. It’s lengthy but you won’t stop once you’ve started reading, particularly if you’re an entrepreneur. The author does a great job of covering the story from a variety of angles, but there is one element here upon which I would like to give pause.

Sherman made the mistake of letting his business success or failure define his worth as a person.

Every day I meet with entrepreneurs who are seeking investment capital. Some are just starting up their venture, others are flying through to success and a lot are grinding away at a 10-year-old dream. Those that are just starting up are pretty easy to spot. They laugh and talk a lot. They’re excited and they certainly can’t sit still because they have so many people to whom they need to spread their brand of evangelism. They talk in that infectious change-the-world theatrical way that makes you want to stand up and cheer. The experienced and/or successful ones are much tougher to spot. They don’t laugh as much. They’re wary and they think before they speak.

But it’s the vast group of entrepreneurs that are still whipping a donkey they wished were a thoroughbred that worry me most. They don’t laugh at all. Their hands shake. They don’t look you in the eye very long and they often need pills or vodka to get to sleep.

If you’re reading this article you’ve likely seen an entrepreneur pitch for money. Whether it’s a good pitch or a bad one, they generally have the same three themes:

1) We face a huge market;

2) Our competitors are either non-existent or stupid; and

3) In three to five years, we’ll all be rich, fat and happy as the hockey stick growth curve kicks into its big ramp.

We see these at angel forums, tech events and gilded galas. We give pitch awards to the brightest and best and investment often follows. Do you ever wonder what happens to those companies that are not in favour? Most of the time, the entrepreneurs take out second mortgages on their homes. They borrow from friends and sell their stuff to keep it going. They, like Sherman, allow their dream to become their ruin. The hockey stick revenue projection isn’t happening and they always blame themselves.

Our networking events and our tech associations do everything to help entrepreneurs get ready for the investor pitch but they do nothing to help entrepreneurs get out of the deal. It’s the company that needs to be shot and killed, not the entrepreneur and yet we keep beating our collective chests with ‘Failure is not an option’ and ‘Never Quit’ bullshit.

An astonishingly huge percentage of start-ups fail. Samantha Murphy wrote a Mashable article in February 2013 that 90 per cent of start-ups fail. So what does this tell you? To me it says, ‘I’m going to try this, it probably won’t work but it might.’ We know that 90 per cent of start-ups fail yet we cover those efforts like they never happened when, in fact, they’re immensely valuable. Nothing teaches like a failure.

I once attended a launch event for a new technology association and there was a panel of four successful entrepreneurs. One harried entrepreneur bravely asked the question, ‘Did you ever think you should quit?’ You could see the stress in his face and hear the gloom in his voice. The response that most of the newly-minted entrepreneurs wanted to hear was ‘No. Never surrender.’ Unfortunately, that’s what they got. Only one of the panelists truthfully stated ‘We were moments from bankruptcy so many times, I’ve lost count.’ But that moment of honesty was trampled by the din of ‘Keep going’. As a result of this kind of thinking, which has been perpetuated by antiquated thinking for decades, we have hundreds and thousands of jockeys who refuse to kill the donkey and buy a thoroughbred.

Dear Entrepreneur: Are you aware that by killing your donkey company, you might actually be helping your investor? If you kill it, they may be able to take the loss in your company and write it off against gains in others.

I know it is a hard phone call to make. You took money from Aunt May. You have to tell her that the money is gone. She didn’t even really understand what the company was all about but she wanted to support you.

It’s tough but it takes real courage to make that call and move on. Your next venture might be the one. Don’t want to make those calls? If you take the inevitable cram-down and keep rowing against the increasing tide, you’ve disabled their ability to recoup anything.

Another time, I saw another 10-year-old start-up with no revenue that had re-invented itself three times. Now they felt they had the right plan and wanted to raise more money. The issue is that they wanted to protect the stake of old investors so the valuation was through the roof. They didn’t even have enough sense to consider that hundreds of other companies were competing for those same investment dollars without 10 years of baggage and lost investment. The entrepreneur was so blind to his dark path, I couldn’t shed any light for him. He is another Jody Sherman waiting to happen. Entrepreneurship and suicide shouldn’t be linked but they have become commonly associated.

The word ‘pivot’ has become so cliche that one almost cringes when it’s uttered. A company has attempted to succeed on plan one but failed, so plan two is enacted in an entirely new direction. Okay, that’s fine but when plan two doesn’t work and you’ve blown through several million dollars trying to make it go, just admit defeat, kill it and move on.

The only people who will criticize you for your failure are not worth listening to. Entrepreneurs provide employment to most of the world’s population and are usually the ones to bring positive change to our society. J

Jody Sherman wanted to be something more than what others expected him to be. Entrepreneurship is good, just know that you are not your company.

alexis29Â You’re absolutely right and I agree wholeheartedly. I love entrepreneurs and work for a company that finances start-ups. Just wanted to make a point to entrepreneurs that are wasting time. Either re-invent the plan that isn’t working or shut it down and try again. We try and we might fail, but we learn to do it better the next time.

alexis29 April 8, 2013 at 9:16 pm

I agree with you. There is nothing as more rewarding like being the boss of oneself. History of the world’s most successful men and women reveled that they are NOT people who sit in one place waiting for some monthly salaries. Rather there are people who took up the challenge (irrespective of lack of finance, irrespective of the fact that most businesses fail even before they are started) and established worthwhile ventures. These are the real entrepreneurs. They keep on trying until they overcome all the challenges most business businesses experience at the initial stage. As an entrepreneur, be ready to go through lots of challenges. The hallmark of champions is the ability to go through challenges and emerge victorious.

Cameron Bayly April 9, 2013 at 11:53 am

Finding that line between seeing your resilience as insane or it bringing you closer to success is challenging at best. Thanks for giving more insight about separating the value of the entrepreneur from their business that they so desperately want to grow.